To have or not to have a fab in India

Several weeks back, a Palo Alto-based venture capitalist specializing in semiconductors said partnering with Israel rather than with U.S. or Taiwanese companies would be a great idea.

BANGALORE, India – Several weeks back, a Palo Alto-based venture capitalist specializing in semiconductors said partnering with Israel rather than with U.S. or Taiwanese companies would be a great idea.

According to Renu Raman of Tallwood Ventures, partnering with Tower makes sense since Israel has many tech startups, fabs and a highly developed IC ecosystem. Tapping into Israel’s infrastructure would ease development of a similar ecosystem in India rather than just building a fab. “So I would start looking at partnering with Israel rather than the US or Taiwan,” Raman said. “Israel needs another market. It is a technology source and not a manufacturing place.”

Tower’s plan to build a 300-mm fab in India is the latest twist in a long and so far fruitless effort to develop an Indian chip infrastructure. The SemIndia consortium plan for establishing a Fab City in Hyderabad went nowhere. Talks with Intel failed when neither the Indian government nor the chip giant could get what they wanted out of a deal.

Next came talks between the Indian and Taiwanese governments. According to sources here, there was a plan to send an Indian delegation to Taiwan to solicit ideas for a fab joint venture in India. The Indian government promised access to it huge markets for defense, transportation and mobile phones. Talks collapsed, sources said, because New Delhi declined to specify the amount of Indian business the proposed fab would gain.

That’s a problem since one of the first things global investors want to know is the size of the potential domestic market. That figure is something government officials have yet to put it down in paper. The talks with TSMC and others in Taiwan ended there.

That was yesterday. Today, the entire landscape here seems to have shifted as the government gets serious about boosting domestic chip companies. Sachin Pilot, Union Minister of State for Communication and Technology, warned the India Semiconductor Association (ISA) recently that if India doesn’t set up a fab and electronics ecosystem within the next five years, it never will. Pilot, along with senior minister Kapil Sibal and a well-meaning team of bureaucrats, are working to get the latest initiative off the ground since the cost of entry will be out of reach five years from now.

Still, many here remain skeptical about yet another attempt to set up an Indian fab. “As an Indian, I would be proud to have a fab in India,” said one observer. “A few things have to be set in the right context. Planning to set up a fab in India is like wanting to set up a five-star hotel in the middle of a desert.”

Others are more upbeat. “It is just not the manufacturing of chips but a means to an end to realize value-added manufacturing in the country to generate intellectual property, product design companies and a complete ecosystem,” noted former ISA Chairman Rajendra Khare. “The government t has to stand firm behind this decision for the next ten years. Only then will this take off.”

A senior government official said there would likely be a mandate for large companies like Broadcom and Intel to commit to using a portion of a proposed Indian fab in exchange for preferential market access.

Total Indian demand for electronics could reach $400 billion by 2020, while domestic production would account for only about $104 billion. Current consumption of electronics is about $45 billion, with semiconductor components accounting for as much as 20 percent of the total.

So, is an Indian fab really akin to a five-star hotel in manufacturing-barren India?

“If somebody has a vision of setting up a five-star hotel in a desert and creating a whole new city around it with the idea of someone using [the five-star hotel], then the analogy fits well,” agreed UmaMahesh, CEO of product startup Indrion. This is precisely the scenario facing India today in setting up a fab, he added, but the vision is to create an entire ecosystem around the fab just as a city might bloom around a new, five-star hotel.

Moreover, wasn’t Israel built on a barren strip of land? Yes, but then it grew to become a homeland for the Jewish people that has prospered far beyond what many would have guessed.

It’s clear the Indian chip market is big and getting bigger. The $5 billion question is whether the government can finally get its act together and close the fab deal with Israel’s Tower Semiconductor.

More electonics manufacturng in India would serve the purpose of denying excess profit to China which they have been known to use to drive up the price of raw materials & indulge in activities that are against US interests ( will incrase our Defense budget ).
But India is not developed enough or even committed to excel in Fabs. Just look at how long it has been taking to formulate even an intelligent policy and traget an appropriate segment. There are probably a lot of digital designers there these days who only know that segment of semiconductors and are therefore having a lopsided effect on policies.
Rather than keep hankering after the latest node ( might cost $ 10 billion to start a eco-system and then $ 3 billion per year for 10 years before showing any effect ) they need to start at the low end where there is both growing domestic & international demand.
To absorb processes from others ( IMEC in Belgium, even Tower ) and run them at high yield takes at least 150 PhDs in solid state and materials sciences. They need to first develop that manpower at small R&D Fabs.
Till then just like Taiwan & So. Korea 35 years ago they should focus on assembly & test of consumer electronics like displays & smartphones using imported components.

@The designers/product developers/manufacturers:
Guys emerging markets (esp. the GIGANTIC yet under-penetrated market in India) are real and an unfolding opportunity I am sure if the electronic eco-system develops in India it would benefit others elsewhere. It is not a zero-sum game.
And yes I am eternally grateful for the opportunities that this country provides to several individuals like me irrespective of the country of origin/religion. I have traveled a fair bit and I can attest that openness at work and in society is remarkable and that is the bed rock of American innovation and consequently the American Dream. I implore you to stop looking at the the rise of other nations as a threat to the American way. Let us continue to innovate but at the same time I agree that all the nations must be fair to each other.
The per-capita income in India is 1/38th that of the US. Millions languish in poverty not for the lack of intelligence or willingness to work but because for years we had followed idealistic socialist policies where economic activity was perceived as a bane. But is it the responsibility of an American corporation or engineer to address that? NO. But your innovation can help millions.
Let me put this in perspective. The wireless chip or the cable-modem board that you design/test has a profound impact on millions world-wide. The telecom/information revolution that is happening in India is a direct result of your efforts. The guy who earns less than 5$ a day can access information and make informed choices about his political representatives/kid's education etc etc.
I think the question that must be pondered over is - How do we accommodate such extreme disparities in global economic structure and yet be fair to every one without slipping into Socialism?
Sorry about the belabor. I have been a silent observer at EE-times for more than 2 years now and felt I should table my views.

Bringing manufacturing back to the U.S. may be an election-time campaign rhetoric, as you say. But it is also the idea many in the U.S. high-tech industry denounced awhile ago.
We have been more accustomed to such casual comments as "nobody in the United States wants to do 'low-level assembly jobs' Chinese are doing any more." Or, "We should focus on R&D and innovations in the United States, not manufacturing."
And many of us bought it!
The truth is that those "manufacturing jobs" in China today require an astounding scale of high-tech manufacturing equipment and facilities; and a range of skilled workers to support the entire ecosystem around the manufacturing.
As we shipped manufacturing, it turns out we have also shipped many engineering jobs as well.
So, yes, bringing jobs back to the U.S. may be just a campaign rhetoric, but it is something we should reconsider and re-examine if there is more than rhetoric there.

@bpd..."Heck even President Obama did not talk about moving jobs back to the US until his re-election bid kick started."
I'm glad that someone else also made that connection. Seems a bit disingenuous for him to bring that up at this point...

There you go again India basher !! Why don't you blame Steve jobs for shipping manufacturing to China? Heck even President Obama did not talk about moving jobs back to the US until his re-election bid kickstarted. I find it amusing when a capitalist talks nationalism when it's convenient. Let me break it down for you - Raman is a venture capitalist and is looking at the best ROI he deems fit. Guess it's Thursday and you really need to take a break from lawn mowing.

Here's an idea: Since he's not doing much good to the USA other than endorsing the diversion of technology cash overseas, how about canceling his green card (I seriously doubt he's a citizen with the kind of attitude he displays) and deporting Renu Raman to go play in India for a while?
It's obvious he must have left India for a reason, but he apparently has no conscience, no gratitude towards his hosts or to those AMERICAN fund sources that stuffed his wallet over the years. Most immigrants, myself included, are eternally grateful to the country that let them in, that helped them prosper.
Actually, Raman should just leave on his own accord if he's so miserable with the USA, and save us the money that'd be spent to send an ingrate home.